DOCSLIB.ORG

Cognitive Dissonance, the Global Financial Crisis

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Cognitive Dissonance, the Global Financial Crisis real-world economics review, issue no. 54 Cognitive dissonance, the Global Financial Crisis and * the discipline of economics Adam Kessler [Fairleigh Dickinson University, USA] Copyright: Adam Kessler, 2010 You may post comments on this paper at http://rwer.wordpress.com/2010/09/28/rwer-issue-54-adam-kessler/ Abstract The global financial and economic crisis has produced a powerful shock to the worldview of an influential group of economists whom I call believers in laissez faire (BLF). I provide evidence which suggests that the BLF responded to this shock in a manner that can best be described as irrational, ill-considered and clearly erroneous. I consider the social-psychological concept cognitive dissonance as the best explanatory framework for understanding this response. Cognitive dissonance theory predicts that when real-world events “disconfirm” deeply-held beliefs this creates psychological discomfort in persons and they will respond by means of distortion and denial. I test the proposition that the BLF experienced cognitive dissonance through a survey in which I asked two groups of economists what their views were on 10 possible causes of the Great Recession. One group consisted of the signers of the notorious open letter circulated by the Cato Institute opposing President Obama’s stimulus program. (I consider members of this group to be self-proclaimed BLFs.) The second group consisted of a random sample of members of the American Economics Association. One of the possible causes I listed on the survey is the U.S. Community Reinvestment Act (CRA) of 1977. The notion that the CRA is a major cause of the crisis apparently has great resonance among the BLF but is demonstrably false. Among other results, 46% of the signers of the letter believe that the CRA was one of three top causes of the crisis compared to 12% of the “other” economists. I conclude that the BLF exhibit symptoms to cognitive dissonance. The global economic and financial crisis of 2007-2009 (?) provides a rare natural experiment for the study of the social psychology of the economics profession. The “sub- prime” crisis of 2007, the banking crisis and credit crunch of 2007-2008 and the deep global recession which started in the United States in December 2007 constitute a powerful shock to the worldview of an influential minority of economists consisting of new classical economists, real business cycle (RBC) theorists, some new Keynesians, so-called “Austrians,” the monetarist remnant, many (most?) financial economists and assorted other believers in laissez-faire.1 I call them the BLF for short. In the words of the title of a recent working paper, they have been “Slapped in the Face by the Invisible Hand.”2 (Gorton, 2009). It is important from society’s (and the profession’s) point of view to try to understand the BLF’s responses to the crisis (and to predict future responses) since they have wide influence on (and often dominate) public policy discussions, especially those involving macro policy and financial regulation. They seem to be in a position to shape the “conventional wisdom” disseminated by elements of the media, institutions such as the O.E.C.D. and G-20, a number of developed- country governments and some circles within the central banking universe.3 My aim in this paper is to apply the concept cognitive dissonance (CD) to illuminate the BLF’s responses to the crisis. At least since the work of Akerlof and Dickens (1982) CD has been employed by economists to study both conventional and unconventional economic * I wish to thank my colleague Evangelos Djimopoulos for help and advice during all stages of this project. 1 For the start of the recession see http://www.nber.org/cycles.html 2 For a recently published book with an almost identical title see Gorton (2010). 3 This can be seen in the “deficit hysteria” described in Nersisyan and Wray (2010). On the O.E.C.D. and deficits see for example Spicer and Younglay (2010). See also Trichet (2010). 2 real-world economics review, issue no. 54 topics.4 Akerlof and Dickens themselves apply it to a labor market “anomaly,” namely the pervasive breaking of workplace safety standards by workers in risky occupations. Of course Akerlof and Dickens and subsequent writers employ CD to examine the behavior of the usual “agents” who are the subjects of study by economists: consumers, workers, entrepreneurs, investors (and more recently, voters, bureaucrats and politicians), whereas I intend to apply it to economists. But I justify this by an appeal to authority: In his presidential address to the Western Economics Association, Milton Friedman (1986) said about economists, “[w]e cannot in good conscience interpret ourselves as behaving differently from those we analyze. We cannot treat ourselves as an exception.”5 (p.8) I proceed as follows: In the first section I state briefly why I view the BLF as adherents of an ideology rather than upholders of a “paradigm” or participants in a “research program,” [i.e., the well-known concepts introduced respectively in Kuhn (1962) and Lakatos (1970)]. In the second section I argue that CD offers a useful approach to explaining why adherents of ideologies (including economic ideologies) cling to them with such tenacity and resist efforts to challenge them. I call this the “CD hypothesis.” This adherence to an ideology (or “model”, as the collection of ideas, attitudes and beliefs which constitute an ideology may loosely be called) has been well-described by Solow (2005): “It can become very difficult ever to displace an entrenched model by a better one. Clever and motivated–including ideologically motivated–people can fight a rearguard battle that would make Robert E. Lee look like an amateur….Old models never die; they just fade away.” (p. 94). In the third section I show that a series of clearly irrational responses to the crisis in public statements by prominent BLFs provide evidence in favor of the CD hypothesis. In the fourth section I discuss frequent assertions by some economists as well as non-economists in the past three years that the U.S. financial crisis can in large part (if not entirely) be blamed on the U.S. Community Reinvestment Act (CRA) of 1977 which attempted to reduce discriminatory lending practices by banks in communities where they obtained their deposits.6 In the fifth section I show that there is overwhelming evidence that the “CRA hypothesis” is false and that adherence to it can be viewed as an indicator of the presence of cognitive dissonance among the BLF. In the sixth section, I report on a web-based survey in which I attempted to ascertain the views of two groups of economists on the causes of the Great Recession of 2007-09: Group A consisted of the signers of the notorious Cato Institute open letter which epitomizes the views of economists opposed to the ARRA, President Obama’s fiscal stimulus program.7 (I consider this group to be self-proclaimed BLFs.) Group B consisted of a random sample of members of the American Economics Association (AEA). I found that there are significant differences in the views of the two groups. Members of group A are much more likely to blame the CRA for the crisis (as well as the so-called “government-sponsored enterprises” or GSEs) than are members of group B. This result suggests that cognitive dissonance can be attributed to the BLF. In the seventh section I conclude. 4 See the many references with the words “cognitive dissonance” in their title. 5 Throughout this address Friedman naturally emphasizes the role of self-interest in explaining the behavior of business people, politicians and bureaucrats as well as economists but surprisingly he interprets the term extremely broadly. He asserts that “…self-interest is not restricted to narrow material interest. It includes the desire to serve the public interest, to help other people.” (p.9) 6 Public Law 95-128. 7 American Recovery and Reinvestment Act of 2009 (Public Law 111-5) 3 real-world economics review, issue no. 54 1. What is the nature of the response to the most severe financial and economic crisis since the Great Depression one might expect (or hope for) from a group of professionals who aspire to the title “scientist?”8 Ideally the response would be the one exemplified by a statement attributed to Keynes: “When the facts change, I change my mind. What do you do, sir?” (Malabre 1994, p. 220) Such an idealized (if over-simplified) view of the process of scientific inquiry is sometimes presented in science (including social science) textbooks in the form of a flow chart, which Blachowitz (2009) following Rudolph (2005) calls the step-by-step algorithm (“observe”, “hypothesize”,” test”).9 But it has been widely understood at least since the work of Kuhn (1962) that the development of science is not as straightforward as this picture indicates. Instead, practitioners of particular scientific disciplines or “scientific communities” cling to “constellations of beliefs, values, techniques, and so on” (i.e., Kuhn’s paradigms) which members of those scientific communities are reluctant to relinquish. [Kuhn (1996, Postscript 1969)] It seems clear that the BLF do not constitute a “scientific community” in the sense of Kuhn: They may share many (important) “beliefs, values…and so on,” but not techniques (or methodologies). More generally they do not necessarily share a common set of attitudes about the nature of social-economic processes and social-scientific inquiry. Thus, for example, one wing of the BLF insist that the only proper approach to macroeconomics consists of constructing DSGE models based on utility-maximizing representative agents (“micro-based macroeconomics”). [See Kocherlakota (2010) and Chari (2010)] A recent outburst along these lines appears in Athreya (2010, p.
Load more

Recommended publications
  • HERC) Is to Increase the Quality of VA Health Economics Research and Cost-Effectiveness Studies
    Center Executive Summary Health Economics Resource Center Director: Todd H. Wagner, PhD The mission of the HSR&D Health Economics Resource Center (HERC) is to increase the quality of VA health economics research and cost-effectiveness studies. HERC provides courses on health economics and econometrics, Cyber Seminars, and consulting services. It estimates the cost of all VA health care encounters, creates databases from DSS cost data, develops and maintains guidebooks to VA financial and health services cost data, issues technical reports with analyses of economic data, issues a bulletin to provide news to customers, and maintains a list of economists interested in collaborating on VA studies. The expertise of HERC economists is developed in their participation in economic studies funded by VA HSR&D, the QUERI program, the Cooperative Studies Program, the National Institutes of Health, and others. Summary of 2014-2018 Strategic Plan This strategic plan addresses challenges facing the VA and U.S. health care system. Among these are the conflict between funding limits, the cost of new technology, and the needs of an aging population. VA will be challenged to compete with alternative sponsors as the Affordable Care Act comes into effect. Other challenges are the increasing number of women Veterans, an increased emphasis on mental health care, specialty needs of returning Veterans, the choice of whether make or buy care, and a constrained federal budget. VA health services research will be conducted by a new Centers of Innovations (COINs) and will need to be conducted in a new information technology system (the CDW-VINCI). In response, five goals are proposed for HERC: train and advise researchers, create and document cost datasets, document other datasets and methods needed by economic researchers, disseminate HERC products, and increase the relevance of economics research to Veteran health care.
    [Show full text]
  • The Economists' Quartet - a Game, Not a Theory
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Gruescu, Sandra; Thomas, Niels Peter Working Paper The Economists' Quartet - A Game, not a Theory Darmstadt Discussion Papers in Economics, No. 109 Provided in Cooperation with: Darmstadt University of Technology, Department of Law and Economics Suggested Citation: Gruescu, Sandra; Thomas, Niels Peter (2002) : The Economists' Quartet - A Game, not a Theory, Darmstadt Discussion Papers in Economics, No. 109, Technische Universität Darmstadt, Department of Law and Economics, Darmstadt This Version is available at: http://hdl.handle.net/10419/84840 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Darmstadt Discussion Papers in Economics The Economists' Quartet A Game, not a Theory Sandra Gruescu and Niels Peter Thomas No.
    [Show full text]
  • Who Are These Economists, Anyway?
    mm-T&A09GalbraithSF.qxp:Layout 1 11/10/09 3:40 PM Page 85 Who Are These Economists, Anyway? by James K. Galbraith Of course, there were exceptions to these trends: a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences. But they were swimming against the tide, unable to make much headway against a pervasive and, in retrospect, foolish complacency. —Paul Krugman, New York Times Magazine , September 6, 2009 Amen. While normal ecclesiastic practice places this word at the end of the prayer, on this occa - sion it seems right to put it up front. In two sentences, Professor Paul Krugman, Nobel Laureate in Economics for 2008 and in some ways the leading economist of our time, has summed up the failure of an entire era in economic thought, practice, and policy discussion. And yet, there is something odd about the role of this short paragraph in an essay of over 6,500 words. It’s a throwaway. It leads nowhere. Apart from one other half-sentence, and three passing mentions of one person, it’s the only discussion—the one mention in the entire essay— of those economists who got it right. They are not named. Their work is not cited. Their story remains untold. Despite having been right on the greatest economic question of a generation—they are unpersons in the tale. Krugman’s entire essay is about two groups, both deeply entrenched at (what they believe to be) the top of academic economics.
    [Show full text]
  • How the Supreme Court Contributes to Economic Inequality Michele E
    University of Baltimore Law ScholarWorks@University of Baltimore School of Law All Faculty Scholarship Faculty Scholarship 2014 A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality Michele E. Gilman University of Baltimore School of Law, [email protected] Follow this and additional works at: http://scholarworks.law.ubalt.edu/all_fac Part of the Business Organizations Law Commons, Election Law Commons, and the Supreme Court of the United States Commons Recommended Citation A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality, 2 Utah L. Rev. (forthcoming 2014) This Article is brought to you for free and open access by the Faculty Scholarship at ScholarWorks@University of Baltimore School of Law. It has been accepted for inclusion in All Faculty Scholarship by an authorized administrator of ScholarWorks@University of Baltimore School of Law. For more information, please contact [email protected]. A COURT FOR THE ONE PERCENT: How THE SUPREME COURT CONTRIBUTES TO ECONOMIC INEQUALITY Michele Gilman * This Article explores the United States Supreme Court's role in furthering economic inequality. The Occupy Wall Street movement in 2011 not only highlighted growing income and wealth inequality in the United States, but also pointed the blame at governmental policies that favor business interests and the wealthy due to their outsized influence on politicians. Numerous economists and political scientists agree with this thesis. However, in focusing ire on the political branches and big business, these critiques have largely overlooked the role of the judiciary in fostering economic inequality. The Court's doctrine touches each of the major causes of economic inequality, which includes systemic failures of our educational system, a frayed social safety net, probusiness policies at the expense of consumers and employees, and the growing influence of money in politics.
    [Show full text]
  • Cultural and Institutional Barriers in Migration Between OECD Countries
    Cultural and institutional barriers in migration between OECD countries Michèle Belot1 Department of Economics University of Essex Sjef Ederveen2 CPB Netherlands Bureau for Economic Policy Analysis One of the basic principles of the European Union and the European Economic Area is the freedom of movement of workers. In practice, migration between EU countries is extremely low. One attractive explanation for the low mobility pattern in Europe is the existence of cultural and institutional barriers to migration. Even if in principle workers are free to move, they are in practice confronted with a series of obstacles hampering their movement. Linguistic and cultural differences, housing transaction costs and a lack of portability of pension rights across countries are all potential obstacles to migration. Our study uses a unique set of new indicators enabling us to test the effects of cultural and institutional barriers on migration between OECD countries. We use data for 22 OECD countries, covering the period 1990-2003. Our results provide strong evidence for the negative effect of cultural differences and institutional obstacles on migration flows between countries. Theme: Migration Keywords: International migration, Culture, Institutions, European Union JEL classifications: J61, F22, O15, Z1 1 University of Essex, Wivenhoe Park, Colchester CO4 3SQ, United Kingdom, e-mail: [email protected] 2 CPB Netherlands Bureau for Economic Policy Analysis, Postbus 80510, 2508 GM The Hague, The Netherlands, e-mail: [email protected] 1 1 Introduction One of the basic principles of the European Union and the European Economic Area is the freedom of movement of factors of production and, in particular, of workers.
    [Show full text]
  • Zbwleibniz-Informationszentrum
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Blesse, Sebastian; Havlik, Annika; Heinemann, Friedrich Research Report Searching for a Euro reform consensus: The perspective from Central and Eastern Europe ZEW-Gutachten und Forschungsberichte Provided in Cooperation with: ZEW - Leibniz Centre for European Economic Research Suggested Citation: Blesse, Sebastian; Havlik, Annika; Heinemann, Friedrich (2019) : Searching for a Euro reform consensus: The perspective from Central and Eastern Europe, ZEW-Gutachten und Forschungsberichte, ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim This Version is available at: http://hdl.handle.net/10419/201191 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been
    [Show full text]
  • Inflation-Linked Bonds from a Central Bank Perspective
    OCCASIONAL PAPER SERIES NO 62 / JUNE 2007 INFLATION-LINKED BONDS FROM A CENTRAL BANK PERSPECTIVE ISSN 1607148-4 by Juan Angel Garcia 9 771607 148006 and Adrian van Rixtel OCCASIONAL PAPER SERIES NO 62 / JUNE 2007 INFLATION-LINKED BONDS FROM A CENTRAL BANK PERSPECTIVE by Juan Angel Garcia1,2 and Adrian van Rixtel1,2 In 2007 all ECB publications This paper can be downloaded without charge from feature a motif http://www.ecb.int or from the Social Science Research Network taken from the €20 banknote. electronic library at http://ssrn.com/abstract_id=977352. 1 The authors would like to thank Jürgen Stark, Philippe Moutot, Francesco Drudi and Manfred Kremer for providing useful comments at various stages of the project as well as an anonymous referee for helpful suggestions. Arnaud Mares provided very useful input to an earlier draft of this paper. We are also very grateful to Hervé Cros, BNP Paribas, for kindly supplying some data. The views expressed in this paper are those of the authors and do not necessarily refl ect those of the European Central Bank. 2 Capital markets and Financial Structure Division, Directorate Monetary Policy, European Central Bank. Adrian van Rixtel is currently on leave at the Banco de España, Madrid. © European Central Bank, 2007 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.int Fax +49 69 1344 6000 Telex 411 144 ecb d All rights reserved. Any reproduction, publication or reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the author(s).
    [Show full text]
  • ST. JOHN's UNIVERSITY NEW YORK Tobin College of Business
    ST. JOHN'S UNIVERSITY NEW YORK Tobin College of Business Department of Economics and Finance SYLLABUS Principles of Economics I (Macroeconomics) ECO-1301-70317 Fall 2016 T, F; 10:40 am – 12:05 pm, Sullivan Hall 303 Professor Cameron M. Weber [email protected] [email protected] website: cameroneconomics.com, “teaching” page Office Hours; T, F: 12:30-2:30 pm, SJH B3, and by appointment COURSE DESCRIPTION Introduction to the fundamentals of the economic system. The “macroeconomic” approach to employment, prices and economic stability. CREDIT 3 Credits OBJECTIVES OF THE COURSE By the completion of the course, students should: 1. Develop the logic of “economic thinking” through the study of economic principles. 2. Describe scarce economic goods, public and collective goods and externalities. 3. Understand the various ways to approach economic macroeconomic policy- making, and, the unresolved debates around policy approaches. 4. Relate macroeconomic stability policy-making to the business cycle and the measurement of economic variables and aggregates. 5. Apply economic understanding, from a variety of economic schools of thought, to better comprehend current events in the economy in order to reach independent, well-considered judgments on important public policy issues. RESOURCES AND READINGS Main text (Recommended, not mandatory) N. Gregory Mankiw, Principles of Macroeconomics, South-Western (Any edition; the chapters listed below are from the 6th edition which is available on reserve for student use at the SJU library). 2 In addition, students should stay current on topical events in the economy by reading the Economist magazine, the New York Times (available for free on campus), the Wall Street Journal, the Financial Times and/or a trade journal specific to the student’s area of study in order to best contribute to class discussion and more fully understand the course material as presented in class.
    [Show full text]
  • International Financial Regulation: Why It Still Falls Short William White
    International Financial Regulation: Why It Still Falls Short William White Working Paper No. 131 th July 25 , 2020 ABSTRACT While recent reforms are welcome in many ways, there are still significant reasons to doubt that the post-crisis tightening of international financial regulation guarantees future financial and economic stability. The most important reason is that the reforms have focused too narrowly on ensuring that an unstable financial sector will not aggravate downturns by restricting the supply of credit. More attention needs to be paid to ensuring that an overly exuberant financial system does not weaken other parts of the economy by encouraging a rapid buildup of debt during upturns. Some combination of time-varying monetary and regulatory policies (a macrofinancial stability framework) will be required to do this. In addition, many of the individual regulatory measures taken to date, both macroprudential and microprudential, have shortcomings. Their coherence as a package has also been questioned. https://doi.org/10.36687/inetwp131 JEL Codes: E02, E32, E42, E52, E58 Keywords: Too big to fail, financial safety, financial reform, financial crises, implicit subsidies, political economy Senior Fellow, C D Howe Institute (Toronto) and former Economic Adviser, Bank for International Settlements (Basel). The views expressed in this paper are those of the author and do not necessarily reflect the views of any institutions with which he has been associated. The author would like to thank Charles Goodhart, Desmond Lachman, Robert Pringle, James Stewart, Leslaw Skoczylas, Dirk Schoenmaker and Andrew Smithers for helpful comments without suggesting agreement with his conclusions. 1 Introduction and Summary The financial and economic crisis that began in 2007 was shocking, not just because of its magnitude and eventual duration, but because it was to such a large degree unexpected.
    [Show full text]
  • Is “Capitalism” a Useful Term?
    The Concept and History of Capitalism Philosophy of Economics University of Virginia Matthias Brinkmann Contents 1. The Concept of Capitalism 2. Types of Capitalism 3. What is capitalism? 03/09/2019 The Concept of Capitalism 2 Is “capitalism” a useful term? [In an article about decisions made by the Texas Board of Education:] In economics, the revisions add Milton Friedman and Friedrich von Hayek, two champions of free-market economic theory, among the usual list of economists to be studied, like Adam Smith, Karl Marx and John Maynard Keynes. They also replaced the word “capitalism” throughout their texts with the “free-enterprise system.” “Let’s face it, capitalism does have a negative connotation,” said one conservative member, Terri Leo. “You know, ‘capitalist pig!’ ” Source: https://www.nytimes.com/2010/03/13/education/13texas.html?hp 03/09/2019 The Concept of Capitalism 3 Is “capitalism” a useful term? […] we do not believe the term capitalism to be a useful one for the purposes of comparative economic or political analysis. By focusing on the ownership and accumulation of capital, this term distracts from the characteristics of societies which are more important in determining their economic development and the extent of inequality. For example, both Uzbekistan and modern Switzerland have private ownership of capital, but these societies have little in common in terms of prosperity and inequality because the nature of their economic and political institutions differs so sharply. In fact, Uzbekistan’s capitalist economy has more in common with avowedly noncapitalist North Korea than Switzerland […]. Acemoglu, Daron, and James A. Robinson.
    [Show full text]
  • Econ Journal Watch Scholarly Comments on Academic Economics Volume 1, Issue 3, December 2004
    Econ Journal Watch Scholarly Comments on Academic Economics Volume 1, Issue 3, December 2004 COMMENTS Adam Smith’s Invisible Hands, Peter Minowitz 381-412 ‘Credibility’ in Context: Do Central Bankers and Economists Interpret the Term Differently? James Forder 413-426 Indentity and Politics in School Reform Research Fabio Rojas 427-436 Fashion Cycles in Economics Philip R. P. Coelho, Daniel B. Klein, and James E. McClure 437-454 Response to Coelho et al., Wolfgang Pesendorfer 455-464 Rejoinder to Edwards and McGuirk, Jih Y. Chang and Rati Ram 465-472 CHARACTER ISSUES Scholasticism vs Pietism: The Battle for the Soul of Economics, Robert H. Nelson 473-497 INVESTIGATING THE APPARATUS The National Research Council Ranking of Research Universities: Its Impact on Research in Economics, Randall G. Holcombe 498-514 ECONOMICS IN PRACTICE Economics without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks, Dan Johansson 515-538 CORRESPONDENCE 539-545 Econ Journal Watch, Volume 1, Number 3, December 2004, pp 381-412. Adam Smith’s Invisible Hands PETER MINOWITZ* A COMMENT ON: WILLIAM D. GRAMPP. 2000. WHAT DID ADAM SMITH MEAN BY THE INVISIBLE HAND? JOURNAL OF POLITICAL ECONOMY 108 (3): 441-465. Abstract, Keywords, JEL Codes “WHAT DID ADAM SMITH MEAN BY THE INVISIBLE HAND?” William D. Grampp poses this long-disputed question and answers it presumptuously via his article in the Journal of Political Economy. In trying to constrain the reach of Adam Smith’s invisible hand, Grampp offers this summary of what it is, and what it is not. True, the invisible hand does have a consequence that is unintended, but the consequence is not a beneficial social order.
    [Show full text]
  • Herefore I Focus on Other Major Events
    Heterodox Economics Newsletter END THIS DEPRESSION NOW! by Paul Krugman. New York, NY: W. W. Norton & Company, 2013. ISBN: 978-0-393-34508-7; 259 pages. Reviewed by Luis Reyes, Centre d’Economie Paris Nord, Paris 13 University Since the 2008 financial crisis hit, rivers of ink have flown from all corners of the – economic and noneconomic– academic world into the sea of (usually misled and/or misleading) individuals who make up what is known as public opinion. Krugman reminds us, from the very first pages of this interesting book, that most of this literature has attempted to explain (either successfully or otherwise) how ‘it’ finally happened. He, instead, asks “What do we do now?” The bottom-line of his answer, well defended on Keynesian grounds, plain and simple is: let the Government borrow and spend what the private sector is unwilling to. This proposal is, of course, not new to heterodox economists. But this lack of novelty is natural, since the author addresses a much wider audience: the vast majority of the misinformed public, misleading journalists, and most notably “orthodox” economists. Before going further, I would like to stress that this is a good read, even for heterodox economists and the well-informed public who are already aware of the virtues of expansionary fiscal policy. The idea is noble, most of the arguments are convincing, citations are timely, and the narrative is very entertaining and full of pop culture as a highly effective pedagogical tool. Economic Ideology and the Twentieth Century Without pretending to make an extensive review of the (economically speaking) most important socio-political events of the past century, it seems worth it to link some historical facts as well as some important publications with the current state of the economics profession.
    [Show full text]